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Cost-Volume-Profit Analysis, Pricing Decisions

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1) Aspen company produces widgets. August budgeted production costs are below:
Widgets to be produced 100,000
Direct material (variable) \$30,000
Direct labor (variable) 50,000
Supplies (variable) 25,000
Supervision (fixed) 40,000
Depreciation (fixed) 30,000
Other (fixed) 10,000
Total \$185,000

In September, Aspen expects to produce 120,000 widgets. Assuming no structural changes, what is Aspen 's budgeted production cost per widget for September?

2) Use cost information in 2) above. In August, the actual direct labor costs were \$46,000 and Aspen produced and sold 90,000 widgets. The direct labor performance variance (difference) is?

3) Below is a performance report that compares budgeted and actual profit of Boyles Beer for the month of April:

Budget Actual Difference
Sales \$200,000 \$202,000 \$2,000
Less:
Cost of ingredients: 162,000 166,000 4,000
Salaries: 31,000 31,200 200
Controllable profit: \$47,000 \$44,800 (\$2,200)
In evaluating the department in terms of its increases in sales and expenses, what will be most important to investigate?

4) Cara's Pizza produced and sold 1,000 pizzas last month and had total variable ingredients that cost \$4,345.
If production and sales are expected to increase by 15% next month, which of the following statements is true?
A) Total variable materials costs are expected to be \$4,779.50
B) Variable material cost per unit is expected to be \$4.99
C) Total variable materials costs are expected to be \$4,345
D) Total variable materials costs are expected to be \$4,996.75

5) Capital Grill has budgeted the following costs for a month in which 2,500 Colby Steak dinners will be produced and sold: Materials, \$5,580; hourly labor, \$5,400; rent, \$1,300; depreciation, \$500; and other fixed costs, \$1,000. Each Colby Steak dinner sells for \$22.00 each.
What is the budgeted total variable cost?

6) The New Product, Inc is looking to achieve a net income of 15 percent of sales. Here is the firms' profile: Unit sales price is \$10; Variable cost per unit is \$ 6; Total fixed costs are \$ 50,000. What is the level of sales (in units) required to achieve a net income of 15 percent of sales?

7) One Small Grill Company is a start up firm with the following profile: Unit selling price = \$ 230; Variable cost per unit = \$ 130; Fixed costs = \$ 36,000; and Tax rate = 40%. What number of units should the firm sell to achieve an after tax target income of \$ 6,000?

8) JingleGym, a best-selling toy, has a selling price of \$15. If the contribution margin ratio is 40% and if the fixed costs are \$60,000, how many JingleGyms must the company sell for a profit of \$450,000?

9) JingleGymApp, a new division of JingleGym will be responsible for creating and selling an app version of the very successful JingleGym. The company expects that the new division will be housed in a separate floor and will pay a rent of \$20,000 to JinglyGym. Salaries for the developers and a manager will total \$400,000. New computers will cost \$300,000 and will be depreciated annually at the rate of 10% of cost. Advertising expenses are expected to be \$50,000. The cost of producing an app is negligible at 4% of the selling price but Apple's appstore charges a 30% commission for each app sold. With this data, JingleGym wants you to estimate the contribution margin (CM) and the break-even point (BEP) in dollars for the new division.

10) Cook's Company sells two models of its product. The King sells for \$140 and has variable costs of \$100. The Queen sells for \$80 and has variable costs of \$60. Richter typically sells 3 Queen for every King sold. Fixed costs are \$250,000. How many Queens will be sold at the break-even point?

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Solution Preview

1) Aspen company produces widgets. August budgeted production costs are below:
Widgets to be produced 100,000
Direct material (variable) \$30,000
Direct labor (variable) 50,000
Supplies (variable) 25,000
Supervision (fixed) 40,000
Depreciation (fixed) 30,000
Other (fixed) 10,000
Total \$185,000

In September, Aspen expects to produce 120,000 widgets. Assuming no structural changes, what is Aspen 's budgeted production cost per widget for September?

2) Use cost information in 2) above. In August, the actual direct labor costs were \$46,000 and Aspen produced and sold 90,000 widgets. The direct labor performance variance (difference) is?

3) Below is a performance report that compares budgeted and actual profit of Boyles Beer for the month of April:

Budget Actual Difference
Sales \$200,000 \$202,000 \$2,000
Less:
...

Solution Summary

The expert examines the cost-volume-profit analysis for pricing decisions.

\$2.19